BitCoin and Licensing Fees

This post assumes you are aware of what BitCoin is and why someone might think it is a good idea to ask for payment of license agreements revenue in it. 

For those who don't know, Bitcoin is a peer-to-peer, anonymous digital currency.

Huh?

Exactly, the concept of Bitcons, how they are made, who has them, and what they are doing with them, are all beyond the scope of this post. I direct you to the Wikipedia site.

For the purposes of this discussion, all you need to know is that Bitcoins are a digital exchange medium. Think of it like an electronic commodity, cyber-gold, if you will. The goal is to have (by whom
?, why? Again, complicated) anonymous commercial transactions over the internet. This would free people from the prying eyes of repressive regimes, allow greater freedom of commerce internationally, and allow people to skip out on paying taxes.

You read (ha! all 2 of you) this blog for IP information, not Libertarian Economic Theory; so what's the point? Well, the point is that we are rapidly converging on a world in which small entities (single person firms, small skill based collectives) are all global companies. Each App creator, Web designer, even self-published author, has the ability to distribute and obtain revenue from a global audience.

One way in which small businesses can gain revenue is by licensing or otherwise monetizing their IP. The most common way this is done is by signing a contract that specifies a certain amount of money, either up front or on per - purchase - basis in exchange for access to the IP. While licensing your tech out for BitCoins in a up-front paid up license, is... a position; licensing your IP for a set number of Bit Coins in the future, or sales in made in Bit Coins, is not advisable.

"Why?", you howl, "I was about to license my tech, for anonymous tax-free Cyber-Space money!"
Well, the problem with anonymous tax free Cyber-Space Money is the chart below.

This chart shows the exchange rate of Bitcoin to US Dollar over a 1 week span. I think the reason not to use Bitcoin as the unit of value in your agreements is pretty obvious. If you had licensed your tech, for 1 BitCoin = 149.00 USD for use in certain Apps, and those apps went on sale on the 6th of April, then you would have made a bad call. (*note, Bitcoin has recovered some market value from the lows put forward, but the volatility remains.)

While initially each sale of your tech was netting you 150USD, by April 10th each sale was netting you 250.00. Huzzah. Then, April 11th rolls around. Devastation!  You are now netting 75USD per tech sale. This is a 50% reduction of your originally agreed upon license fee. Did you lose a war? Zombie Plague? Nope, just the random volatility of the commodities market.

The reason why you don't do this is the same reason why you don't license your IP for the "sale price value" of a Condo in Dubai in 2034. While there are arguments to be made for the upside, there are clearly reasons why such as speculative agreement is not the best way to maximize your IP value.

The way to maximize your IP value through licensing is to license your tech (or art, or published works) in the currency of a regime that places a strong value on IP rights, and a stable currency. Secondly, your agreements should be constructed to provide you with a fair market value of the IP, not speculative upside seeking. A stable license agreement for the duration of a copyright (Life + 75 years, i.e. see Jackson, Michael) is a great way to provide multi-generational economic stability.  Gambling that on an electronic currency is not the best use of your assets.

Jordan Garner

Architectural Plans and IP

The house to the left, deigned by famed Architect Richard Neutra, and immortalized by photographer Julius Shulman is not for sale. 

However, in the future you could get your very own copy of that house or another house, directly from the work shop of Richard Neutra. 

A new partnership between, Dion Neutra (Richard's son),  and the Neutra Office and California Architecture Conservancy,  allows for individuals to license the right to build their very own Neutra-designed home. Dion Neutra and the Neutra Office will even supervise the construction. 

Of course, the price is "upon request" but is supposedly line with existing custom architectural plans. 

I was once told that if you have to ask the price of something, you can't afford it. That is likely the case here, and that's unfortunate. 

It is really unfortunate that existing plans, already created and merely stuffed into a portfolio somewhere, are being priced as though they were new works of commission. The benefit for Dion is that the plans represent the sunk IP development cost of Richard Neutra not Dion Neutra. Attempting to extract that cost now, on a per copy basis, is a great way to ensure that those with the money to afford it, will resort to hiring a living architect. It is a little like saying every time you wanted to hear a song from your favorite artist, you had to pay to go to a concert. 

One goal of IP to place the maximal level of control over a work in the hands of its creator. However, a competing goal is to maximize the value of the work. In this circumstance, it is clear (maybe not to them) that it is the desire of the Conservancy is to minimize the wide scale reproduction of Neutra design homes, at the expense of well...nothing.

Pricing the plans such the "brand" value of the Richard Neutra is maintained (i.e. expensive), does nothing to advance the state of modern architecture, nor does it maximize the inherent IP value of Richard Neutra's work. 

One of the problems in American Housing stock is that the places in which people who appreciate Neutra style homes (i.e. Modern, yuppie types) live, are the same places that have pretty well developed housing stock. It is generally not possible (economically, or otherwise) to move into, say Scarsdale, and build a Neutra home from scratch. You would likely need to tear down an existing house and build a Neutra home over the bones of that. Once you have spent a significant amount of money tearing down a perfectly good home, odds are, you are going to replace it with something highly customized to your needs. Odds are, a Neutra Home, is not highly customized to that affluent individual's particular needs. 

Instead of pricing it in a way that only a very few people will avail themselves of the opportunity, Conservancy should be pricing the plans to hit the urban / upscale suburb market. By making the plans available for a small fee, the range of potential builders increases dramatically. 

I am not advocating forcing IP owners to license their works at cut rate prices. However, it makes sense to sell the plans to modern, aspirational housing, to actual aspiring artistic people. These people generally do not pay for custom architectural plans, because they are expensive. Here, Neutra has no cost, so the profit margins, at any price, are wide.  


Jordan Garner - 

Scammers Part 2

A while back I talked about watching out for scams in the form of "official" seaming documents coming from overseas and asking for "international patent" fees.

Well, short time ago, we started receiving inquires from our clients regarding the same issue but this time from a "official" international Trademark Office in Latvia. Note: There is no International Trademark Office. Second Note: If there were...It would not be in Latvia.

Just as in the first instance,Leason Ellis is taking the fight to the scammers.

See here: http://www.law360.com/articles/437509/ip-firm-leason-ellis-sues-to-shut-down-trademark-scammer

Check back for updates.

Last days of First to Invent System

This is a short post, and probably should have been done before now, however Life! Today is the last day to file a U.S. Patent Application under the 1st Inventor system that we have used for 200 Years. Starting Monday, the U.S. (in harmonization with the rest of the developed world) will move to a First to File system. 

What does this mean. Well, probably nothing. However, if you are in a development race with another company, you should really think about filing today.  Now, in the U.S., it will be possible to be beaten to the patent office by a later inventor. 

So, if you have a provisional, or even a technical document, you should think about filing it before midnight. I could help you with that. It is easy to file a provisional and under the new rules (AIA) the cost is pretty modest for small companies. 

Next week starts a brave new world, or in Greek, an Apocalypse. 

Contact Jordan at: jgarner@leasonellis.com

Design Convergence and Design Patents

The other night, I read my son his favorite Train Book. This book contains a global panoply of  Train designs ranging from the old school "Tank" engine of Thomas to the ultra-sleek trolley trains of modern Germany. *See left.

Unfortunately for my 2 year old son, the modern trains have a more than a passing resemblance to buses.  My son insisted that the vehicle to the left was a "bus" and not a "train."

I was crushed, I had failed in my helicopter parenting. I failed to teach my son about the sordid world of design convergence.  He looked at me with puzzled eyes as I explained that, as the life cycle of a product category grows, the lion's share of new development efforts are directed to squeezing  maximum utility from the product.

In this case, buses and trains, no mater their underlying mechanisms of action, are both means of conveying people form location A to location B as quickly as possible (assuming you're not talking about the Manhattan X-Town).  Because they are mature technologies directed toward the same goals, designers will achieve  convergent design. This is true even when taking into account the unique technological platforms.

 The bus to the left is slightly higher due to engine and drive train. The trolley is longer and has less ground clearance.  However, overall, the design of the bus and the train are pretty similar. The windows on the side, the larger driver windshield,  the double doors, all of them speak to an optimization of certain design element that we look for in public transit.

Now, what does this have to do with intellectual property?

When an inventor or designer is contemplating obtaining protection for a concept, it is essential to understand the underlying function. However, it is also important to look to optimal form for achieving that function.

 In our bus/train example, if a designer had a design for a new bus, a Design Patent that covered some of the elements relating to usability, would run afoul of "no functional elements" prohibition of design patents.

 However, if you simply drafted utility claims directed to big windshields and double doors  you are unlikely to get very far with the patent office. The solution then is to break your concept down into two parts, the function of the device, and how the user interacts with it. Double doors become passenger clearance enhancers, not simply design elements.

Most inventors are quick to seek protection on the function of the device. A far smaller number actually obtain protection on commercially viable product form factors. One company that has aggressively exploited this gap is Apple. Since the internal components of Iphones are generally known technology, Apple relies heavily on Design Patents to protect the unique look of its products. The function of a Samsung phone and an Apple phone are technically identical. However, the appearance are worlds apart.

In order for an inventor to cover both avenues, it is essential to have a working knowledge of how users will interact with the technology and what forces will drive convergence.  Inventors have done themselves a great disservice by not pushing some quantitative analysis of user interface designs, as they relate to their specific technology. Once they find the optimal design, they could file for a Design patent along with their utility applications.

By the time I finished explaining all this, my son had decided it was just easier to go to sleep, hopefully dreaming of converged automotive design.

By: Jordan Garner
Contact me at: jgarner@leasonellis.com

Changes in Patent Law and Kickstarter

I love Kickstarter as much as the next person. Friends and colleagues have used the crowd-sourcing platforms, and ones like it, it generate interest in various projects that were too nebulous or personal to fund directly.

However, there are some serious issues that any designer, inventor, or artist, should consider when using the platform.

But first, lets discuss some changes in the U.S. Patent law. (Something I have lectured about in Shenzhen for 2 years running).

On March 16, 2013, the U.S. moves to a "First Inventor to File" system. This is the creamy middle between the rest of the world's "First to File" system, and the old U.S. system of "First to Invent." The reasons for this change are detailed and boring, and largely have to do with large companies wanting to harmonize their patent dockets across global jurisdictions.

Fascinating you say! Well, you don't, unless you are a patent geek.  However, if you are a producer of "kickstarter-able" (an adjective denoting awesome concept stage project) items, this should interest you.

Why? Because, if you place your custom designed fixe bike lock on Kickstarter, and you have not filed for a patent (even a design patent), you are in trouble. There are two mistakes that you made by going to Kickstarter before going to the patent office.

Mistake 1 - by publishing on the Internet, you have FOREVER given up your right to get a patent in "absolute novelty" countries. So, your sweet bike lock concept? You can never get protection on that in Amsterdam because the EU is a "absolute novelty" system. You have to, if you want protection in Europe, (and investors and business partners love to see IP before they give Euros) you need to file for protection before disclosing the idea, even for designs.

Mistake 2 - By not filing an application, even a provisional application with just some drawings and the $75.00 fee to the USPTO, you have set yourself up to be beaten to the patent office.  Say, for example, that after you go live with your Kickstarter page, a unscrupulous individual in  "Asia" decides that your idea is pretty sweet. So he(or she, 'Pirate' is an equal opportunity profession) files a patent in the US based on your concept.

 In the old days, when you filed a patent, there would be something called an "interference" which would determine who of the pair of you was the first to invent. Since we have gotten rid of that system, the new procedure is called a derivation procedure. We have no idea how time and money intensive this procedure is, since it is brand new. Either way, you are going into the Patent Office and spending time and money you probably would have preferred to keep. All the while, this individual is flooding the market, and her bank account, with your concept.

So the two bits of advice I give to clients who want to go the crowd funding route is: 1 File SOMETHING at the patent office before you go live, and 2, after you have filed something place "patent pending" somewhere on your page.

I hope this help. As always, you got a question, you drop me a line. 

Russian Hackers vs Giant Vampire Squids

Of course, the poor illustration to the left is a wildly inaccurate retelling of the current legal battle being waged between banking giant Goldman Sachs, the Federal Government, and Russian Computer programmer Sergey Aleynikov.  While I won't go into the detail  (you can find info here, here and here) these are the basics. 

In 2008, Mr. Aleynikov, computer programmer, Russian Immigrant, and stand-in for future Bond villain, went to work for Goldman Sachs. During his tenure at the "Giant Vampire Squid" of Wall Street, he came across (or illegally accessed) some code base relating to high frequency high volume trading algorithms. Later, proving once again that there is no better capitalist than a former communist, Sergey struck out on his own, joining a financial start-up.

 Goldman Sachs, who had been paying Sergey 400k a year, insisted that he had stolen the code and was using it to make money at the expense of Goldman Sachs making money. Furthermore, Goldman claimed that the code, improperly used, could lead to destabilization of the financial markets. 

(It is a good thing that Goldman Sachs is responsibly in control of "Market Destabilizing Technology" ; We wouldn't want that to fall into the wrong hands)

Getting in the way of Goldman Sachs and profit; or destabilizing the world financial markets are  great ways to get the Feds called down on you.  

In December 2010 Aleynikov was convicted of the two counts of theft of trade secrets and transportation of stolen property under The National Stolen Property Act, 18 U.S.C. § 2314, and the Economic Espionage Act of 1996, 18 U.S.C. § 1832. 

Even though Federal Probation Service suggested a 24 months sentence, the Court in Lower Manhattan sentenced him to 97 months in prison, plus three-years of supervised release and a $12,500 fine. Furthermore, three weeks before sentencing, Aleynikov was incarcerated on request of the government, as he was judged  a flight risk.

Much like land wars in Asia, and going against a Sicilian when death is on the line, one simply can't take code from Goldman Sachs and expect anything less than utter devastation.

However, Mr.  Aleynikov was not quite helpless. His attorney appealed his conviction, asking the Second Circuit to review the District Court's decision denying a motion to dismiss the indictment for failure to state a claim. The Second Circuit heard oral argument on his appeal and, later that same day, unanimously ordered his conviction reversed and a judgment of acquittal entered. 

A copy of the opinion is here.

In summary, the Russian immigrant played the oldest trick in American Jurisprudence...A technicality. 

He argued that the source code was not a "stolen" "good" within the meaning of the NSPA, and  the source code was not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA.  The code was for internal Goldman Sachs use, and was not a 'good' so much as a component of a service that was offered. A plain, reasonable reading of either statute failed to cover his actions.  The Appeals Court agreed, and reverse the judgment of the district court.

Of course that is not the end of the story. The current Congress, who can't even agree to send money to hurricane victims, quickly drafted and passed, the Theft of Trade Secrets Clarification Act.  Then, noted anti-capitalist and Anti-wall Street Crusader President Barack Obama signed the Act into law. 

The Act expands the EEA so that it casts a wider net over actions that constitute a trade secret.  The EEA now applies to trade secrets related to "a product or service used in or intended for use" in commerce.  Senator Patrick Leahy, the sponsor of the bill, said specifically the new language would encompass trade secrets like Goldman’s internal source code, which, though not for sale, "was part of a financial trading system that was used in interstate commerce every day."  Cong. Rec. S6978 (daily ed. Nov. 27, 2012). 

So there are 3 takeaways here. 

1. If you are Goldman Sachs and you don't like a law, call a Senator and you get a new one.

2. For non-Goldman Business. The scope of Federal Trade Secret protection has just been expanded greatly. It is advisable that you reference this law in any employment contracts or other Disclosure or retention agreements, just so that employees know that prison and fines await them.  

3. For non-Goldman Employees. You need to make sure that any code or documentation that you come across, does not find its way into your side, start-up projects. The threat of this law and the repercussions they entail are pretty serious and can easily derail a career. There will be employers that will cite this law against innocent employees, so the only way to protect yourself is to meticulously document where the code you are using is originating. No short cuts.